Last October, the U.S. government shutdown lasted 43 days, leading to a tightening of global financial liquidity and a sharp decline in the crypto market. By the end of this month, a similar event may occur again.
(Background: End of the U.S. government shutdown = rebound? Analysis of Bitcoin, gold, and U.S. stocks’ performance after previous reopenings)
(Additional context: What impact would a U.S. government shutdown have on Bitcoin?)

Table of Contents

• Everything starts in Minnesota
• The perennial debate: “Obamacare”
• Will this shutdown hit the crypto world again?

Last October, the U.S. government shutdown lasted 43 days, causing a severe liquidity crunch worldwide and a significant drop in the crypto market.

Many people still remember that event vividly. Now, a similar situation might happen again by the end of this month.

Three days ago, Trump said in an interview at Davos: “I think we have trouble again, and it’s very likely we’ll fall into another government shutdown caused by the Democrats.” Although lawmakers are working hard to finalize a funding agreement, with the January 30 deadline approaching, the U.S. government has only 4 working days left, making another shutdown seem unavoidable.

The probability of a “U.S. government shutdown before January 31” on Polymarket has surged to 80%.

Currently, the divide between the two parties mainly revolves around ICE funding and Obamacare funding. These have long been contentious issues in elections: immigration policy and social welfare. To understand why the government might shut down, we need to start with the largest welfare fraud case in U.S. history that happened in Minnesota.

Everything starts in Minnesota

U.S. federal agents investigate fraud in Minnesota

The story begins in 2020, when the pandemic first broke out. The U.S. has a traditional welfare policy: providing free lunch for children in impoverished families. Before the pandemic, this welfare was tightly regulated, requiring children to eat together at schools or community centers, with attendance checks to prevent fraud. But when schools closed and children stayed at home, Congress quickly changed the rules, allowing meals to be packed and taken away without strict oversight. As long as you are a registered non-profit organization claiming to distribute meals, the government would pay, with no cap.

This loophole was the background for the Minnesota welfare fraud case, uncovered by an American social media blogger Nick Shirley.

In December 2025, Nick Shirley released a 42-minute investigative video titled “Viral Overnight.” In it, he exposed a group of non-profits claiming to provide “child nutrition” and “aid to vulnerable groups,” which applied for funds from state and federal governments. Their accounts showed thousands of beneficiaries, but in reality, many children and meals did not exist. These so-called public welfare projects were just shells used to siphon government funds.

The video went viral quickly, with initial 24-hour views exceeding tens of millions. Combined with clips and shares, the total reach surpassed 100 million. After the incident gained attention, DHS and FBI investigations revealed that since 2018, the federal government had allocated a total of $18 billion to 14 public projects in Minnesota, with involved funds reaching up to $9 billion. It became one of the largest welfare fraud cases in U.S. history.

What makes this case politically explosive is that it happened in Minnesota.

Minnesota has long been a solid Democratic stronghold. The Democratic governor was once Harris’s running mate. The state relies heavily on welfare programs and has a dense network of non-profits. Its welfare system has developed a “outsourced governance” structure over the past decade: the government does not directly provide services but delegates many functions to non-profits. Theoretically for efficiency and community autonomy; in reality, it has created a loose, weakly regulated, highly entangled political gray area.

Many involved organizations have close ties to local Democratic politics. Evidence suggests that a significant portion of the fraudulently obtained funds flowed into Democratic campaign contributions.

Meanwhile, Minnesota is also highly immigrant-rich, with large Somali communities. The state prosecutor’s office states that out of 92 defendants in this case, 82 are Somali Americans. This intertwines immigration enforcement, welfare distribution, and public safety issues, hitting at core long-standing conflicts between Democrats and Republicans, and aligning with Trump and the GOP’s key campaign promises.

Since someone handed them a knife, the Republicans naturally chose to drive it in hard.

Both Trump and Elon Musk, the biggest “internet celebrities” in the U.S., repeatedly shared related content, sharply criticizing Minnesota’s handling of the case, linking these opaque, potentially abused subsidy policies to the Democrats’ long-term expansion of social welfare.

Because of the exposure of the Minnesota welfare fraud case, Trump significantly increased immigration enforcement in Minnesota. DHS and FBI dispatched many agents to continue investigations and crackdowns on illegal immigrants, with ICE (Immigration and Customs Enforcement) leading the efforts.

But the sudden intensification of law enforcement soon caused serious consequences.

On January 7, ICE agents accidentally shot and killed a 37-year-old woman, Renée Good, during local enforcement. This drew nationwide attention. Just 17 days later, on January 24, another American citizen, Alex Pretti, was accidentally shot and killed by federal immigration officers.

Two consecutive fatal shootings pushed Minnesota into chaos. Large-scale protests and riots erupted, even requiring the National Guard to restore order. Democrats quickly seized this opportunity, using the ICE shootings as evidence of law enforcement out of control.

Citizens spontaneously mourn victims shot by law enforcement

So, why does this matter for the U.S. government shutdown on January 31?

In the U.S. constitutional system, the purse strings are held by Congress; the executive branch cannot decide on its own to continue spending. Each fiscal year, Congress must pass 12 appropriations bills corresponding to different policy areas: defense, homeland security, agriculture, transportation, housing, etc. These bills determine the maximum spending for each department and what it can be spent on. If a bill is not passed, or if the fiscal year’s authorization expires and no new law is enacted, the department runs out of budget and must shut down. This is what is called a government shutdown.

The normal process begins on October 1. If no agreement is reached by then, Congress usually passes a temporary funding bill to keep the government running until a new deadline. The current focus is on January 30, the expiration date of this temporary bill. If by then no full appropriations are passed and the temporary bill is not extended, the government will shut down or partially shut down.

These appropriations bills must be approved by both the House and Senate. The House has already signed off; the process is stuck in the Senate.

The Senate requires 60 votes to pass a government funding bill. Currently, the Senate has 53 Republican seats, 45 Democratic seats, and 2 independents aligned with Democrats, totaling 47 votes for the Democratic side. Even if all Republicans vote “yes,” they only have 53 votes, which is not enough to reach 60 and end debate.

This means that as long as Democrats collectively oppose, Republicans need to secure at least 7 votes from Democrats to pass the bill and avoid a shutdown. This is why Trump has been advocating to eliminate the 60-vote requirement for passing legislation.

In this context, the most contentious and hardest-to-reach part of the current funding negotiations involves the Department of Homeland Security, including ICE.

Many social media voices support ICE law enforcement

Democrats’ logic is clear: the ICE killings in Minnesota prove the agency’s law enforcement methods are seriously problematic. Without substantial reforms and stricter restrictions, why should we keep funding it? Democrats demand cuts to ICE or at least strict limitations.

Republicans take the opposite stance: the Minnesota welfare fraud involved $9 billion, mostly with Somali defendants, which underscores the need to strengthen, not weaken, immigration enforcement. ICE is crucial in fighting illegal immigration and welfare fraud, and must be funded adequately.

This opposition has led to a deadlock in the Senate over the Homeland Security appropriations, including ICE funding. This issue may even become a political “ammunition” for both parties in the midterm elections later this year, becoming a key battleground.

The perennial debate: “Obamacare”

Beyond ICE funding, the issue of healthcare subsidies forms the second, more “structural” point of contention in this shutdown risk. This is also a lingering issue from the previous shutdown: whether to continue increasing subsidies for the ACA (Affordable Care Act, aka Obamacare).

These subsidies were initially introduced as temporary measures during the COVID-19 pandemic, significantly lowering the actual cost of health insurance for middle- and low-income people through tax credits. They were not made permanent after the pandemic, and officially expired at the end of last year. Due to disagreements between Democrats and Republicans over appropriations, this issue was “frozen” during the last shutdown but has not disappeared; it has just been delayed until now.

Democrats want to increase the budget; if subsidies are not renewed, millions of Americans’ health insurance premiums will spike sharply or they may be forced out of the system altogether. But Republicans’ opposition is rooted in similar reasons as the Minnesota fraud case: the pandemic-era subsidy system has fostered systemic fraud, and ACA subsidies are not just a fiscal burden but a “gray fund” exploited by local non-profits, insurers, and political networks.

Politics affects livelihoods, and livelihoods influence politics.

During the negotiations over this healthcare budget, many issues are intertwined with hot online debates.

For example, the “U.S. death line” theory that has sparked discussion in Chinese communities: many American families are not destitute—they have jobs, income, and insurance—but their financial safety margins are extremely thin. When faced with unemployment, serious illness, accidents, or the expiration of subsidies and rising premiums, their cash flow can “collapse” in a very short time. Foreclosures, credit card defaults, and medical bills snowball simultaneously. Like characters in a game, once health drops below a critical threshold, a single “critical hit” can knock them out.

ACA subsidies are precisely the last buffer preventing many families from crossing this “death line.” They don’t make people wealthy, but they prevent a single illness or job loss from pushing them out of the system. That’s why Democrats describe the subsidy issue as a “crisis of affordability,” not just “welfare expansion.”

In this social context, the incident that once triggered widespread outrage involved a 26-year-old Ivy League graduate from a wealthy family, who shot and killed the CEO of America’s largest insurance company—an act that seemed to fulfill the American public’s image of a “modern folk hero.”

Suspect Luigi who shot the CEO

The insurance CEO, symbolized and turned into a victim, became a casualty. Healthcare issues are no longer just policy debates—they are eroding the social sense of security at a fundamental level.

When people start using extreme events to express despair about a system, it indicates that the discussion space for that system has become severely unbalanced. The fight over ACA subsidies is precisely in this unbalanced state, pushed to the intersection of Congress, elections, and government shutdowns.

Will this shutdown hit the crypto market again?

Will the impact of this U.S. government shutdown be as severe as the last one, causing a market crash?

I think there will still be negative effects, but probably not as intense as last time.

The main reason is that Congress has already passed 6 out of the 12 annual appropriations bills. This means that if an overall agreement is not reached by the end of January, the shutdown will be partial, not total. This is a fundamental difference from the October 2025 shutdown.

Last time, the entire budget system failed, lasting 43 days and setting a record. This time, even if it happens, it will mainly target DHS and a few departments that have not yet received funding. Currently, the crypto market seems to have anticipated this and has already declined in advance. Related reading: “Why Bitcoin Keeps Dropping.”

Furthermore, this shutdown could also impact the crypto industry at the institutional level.

If the budget deadlock persists, Congress’s entire political focus will be on “avoiding a full shutdown” as the lowest priority. Other issues—especially complex, bipartisan legislation—will be systematically sidelined. The most critical among these is the “Digital Asset Market Clarity Act,” which the industry is highly concerned about.

The significance of this bill is not in short-term stimulus but in establishing regulatory certainty: clarifying whether digital assets are securities or commodities, defining SEC and CFTC jurisdiction, and providing compliance anchors for exchanges, DeFi projects, and institutional capital.

The bill passed the House in July and was expected to be reviewed by the Senate in January. But if the government again shuts down, this schedule is very likely to be delayed again.

This will not immediately push down crypto prices but will slow institutional capital inflows and weaken the long-term narrative certainty.

Overall, even if the U.S. government enters another shutdown in January, its direct impact on financial markets, especially crypto prices, is unlikely to replicate the previous turbulence. The current shutdown risk has been highly anticipated and is more limited in scale.

But within this event, we can see more of a “prelude” to the midterm elections at the end of the year.

Whether it’s ICE funding, ACA healthcare subsidies, or the tug-of-war over welfare fraud and healthcare affordability, these disputes are closely linked to voters’ daily lives and are easily transformed into clear, polarized, and propagandistic political narratives. The government shutdown is evolving from a budget failure event into a political battlefield prepped by both sides for the midterm elections, setting the tone for the political and policy directions in the coming months.